Greek Economy to Grow 2.2% in 2023, Central Bank Forecasts

The Bank of Greece has raised its economic growth forecast for Greece this year, according to the central bank’s governor, Yannis Stournaras.

Presenting the bank’s annual report on Friday, Stournaras said that the Greek economy is expected to grow by 2.2% in 2023, and the inflation rate is set to fall to 4.4%, with the state budget expected to record a primary surplus of 0.7%.

Stournaras highlighted the remarkable progress made by the Greek economy, which grew by 5.9% in 2022, exceeding pre-pandemic levels in absolute terms.

He also noted that foreign investment inflows in the last two years reached a 20-year record, reflecting renewed confidence in the outlook of the Greek economy.

The unemployment rate fell below 2010 levels, thanks to labor market reforms that boosted flexibility, although the inflation rate reduced household incomes.

The country’s debt was 171.4% of GDP, down 35 percentage points from 2020. Stournaras said that 2022 budget targets were achieved, and the primary deficit will be almost eliminated.

Turning to the banking sector, the central banker said that the return of banks to profitability was remarkable, and they were better positioned to absorb any turbulence from international markets.

Greek economy could be derailed due to a prolonged election period

However, he warned that the economy still faces challenges and threats, mainly due to a deteriorating external environment and the prospect of a prolonged pre-election period.

Greece will hold a general election on May 21, weeks before the conservative government’s term ends. But the vote is unlikely to produce a clear winner, setting the stage for protracted political maneuvering and a runoff vote.

“The biggest risk for Greece’s economic prospects in a period of successive crises and increased uncertainty would be a loss of credibility on the economic policy implemented, which was so hard to regain, and a return to the bad practices of the past,” Stournaras said.

“Since 2023 is a year of national elections, to maintain the climate of confidence in the prospects of the Greek economy, prudence and responsibility are required from political forces, that need to support the country’s fiscal goals,” he added.

EU has a lower growth forecast for the Greek economy

The European Commission has forecasted a slower growth rate for the Greek economy. In its winter economic forecast report released in February, the Greek economy is projected to grow by 5.5% in 2022, 1.2% in 2023, and 2.2% in 2024.

Greece’s economy recorded solid growth in the first half of 2022, but rising inflation took its toll on growth in the second half of the year, the EU executive said in the report.

However, the Recovery and Resilience Facility (RRF) provided notable support to the economy and government measures cushioned the impact of energy prices on businesses’ input costs and households’ real disposable incomes.